ESOP Law Blog : ESOP Lawyer & Attorney : Sheppard Mullin Law Firm : Employee Stock Ownership Plans : ESOP Law Blog

On September 19, 2011, the Employee Benefits Security Administration ("EBSA") of the Department of Labor ("DOL") announced it would reconsider and re-propose its regulation that would have included ESOP appraisers in the definition of "fiduciary " for ERISA purposes. ESOP-owned companies, along with The ESOP Association, the National Center for Employee Ownership and the Employee-Owned S Corporations of America voiced a number of objections to the proposed regulations, most importantly citing the significant negative impact the proposed regulation would have on the formation of new ESOPs, and the increased costs of operating existing ESOPs.
 

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A district court in Arizona has upheld an ESOP Committee's decision to amend the timing and manner in which terminated employees' company stock accounts are converted to other investments. Prior to the amendment, the ESOP provided the committee with the discretion at any time to "determine (based upon a nondiscriminatory policy) that the Accounts of former Employees will be diversified and invested in Trust Assets other than [Company] Stock." The district court found that the Committee's actual practice was to convert investments as soon as the ESOP had sufficient cash to do so. The amendment in May 2007 provides that a terminated participant's company stock will be converted to other investments effective at the end of the plan year in which the participant terminates employment. The plaintiff was a participant who was considering whether to participate in a reduction in force (RIF) in September 2006. The plaintiff was told by a member of the Committee that it would take approximately two years for the account to be converted. Since the plan year ended in September, the plaintiff expected her account would not be converted to other investment until 2007 or 2008. When the Committee amended the policy in May 2007, the change was applied to all terminated employees, and so the plaintiff's account was converted as of September 30, 2006. The plaintiff filed the lawsuit seeking the increase in the stock value from 2006 to 2007.
 

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